Neither Germany nor the EU want to grant Britain good trade terms

The British people called Europe's bluff last week. The problem is, I don't think Europe was bluffing. The negotiations we're headed for are going to be tough, but there is at least an idea emerging of what Britain wants. It would maintain or even deepen its economic relationship with the Continent because it is a trading nation that knows well how to take advantage of free markets and efficient capital flows.

The British people called Europe's bluff last week. The problem is, I don't think Europe was bluffing. The negotiations we're headed for are going to be tough, but there is at least an idea emerging of what Britain wants. It would maintain or even deepen its economic relationship with the Continent because it is a trading nation that knows well how to take advantage of free markets and efficient capital flows.

But alongside that, it would like to dump the ever-encroaching influence of foreign officials over its courts, home affairs and, most importantly, immigration.

What divided right-wing Remainers like myself from Brexiteers was the belief that, in the long run, Britain was likely to get more of what it wants inside the EU than outside. We lost that argument.

Now we will see if the Brexiteers are right. They argued that once Britain voted out, it'd have the EU over a barrel. They'd have to compromise to stop the whole project falling apart and protect their exporters. Once Britain had struck a better deal - real concessions, rather than the chaff we saw in February - it could choose to stay or leave as we pleased.

But let's have some realism. It's true that the EU's politicians fear a break-up of the union more than anything else. But, by and large, they believe that giving major concessions to Britain after it voted to leave would actually encourage that disintegration, rather than prevent it.

Striking an excellent bargain for Britain would open up "a Pandora's box" for the EU, an official for a major EU government told me this week. Why? Because it would send the message that the way to get what you want from Europe is through threats and referendums. Greece tried that. It didn't work. This is not just the view of ideological zealots in Brussels such as Jean-Claude Juncker.

It is also the view of Germany, whose support will be critical in negotiations. Germany, the paymaster of Europe, should be Britain's natural and most important ally. Its leaders believe in sensible, market-based policies. Britain is its third-biggest export market. And Angela Merkel doesn't do vengeance, she just does what's best for Germany.

Unfortunately, there's something she fears more than a hit to German exports: an outbreak of referendum fever across the Continent. This prospect provokes particular horror in Berlin partly because referendums bring memories of the doomed Weimar Republic.

This is why we saw Ms Merkel echoing the words of Mr Juncker on Tuesday, saying Britain cannot "cherry-pick" EU policies. This is why EU governments issued a statement to this effect on Wednesday.

Immigration is a sensitive topic on both sides. Neither EU nor German officials want to water down the principle of free movement by granting Britain both good trading terms and immigration control. This is not just a matter of ideology. They believe altering the region's internal migration policy could require opening up and altering the EU's basic treaties. Avoiding treaty change is a German priority because of the enormous opportunity it would give Eurosceptic countries like Poland to unpick huge chunks of policy.

Of course, none of this means that Germany or other states' views will not change. Extremist, anti-EU parties are on the rise, particularly in the Netherlands, Austria, France and Denmark. Italy will hold a referendum on constitutional reform in October. France and Germany will hold elections for their leaders next year. It's not clear how mainstream parties will react to these events.

There is an increasing recognition among EU leaders that they might need to change their ways in order to calm their own voters. It is likely they will start to work out compromises with Europe's populist forces in the coming years. But they do not want to be seen to do that under duress from Britain.

This is where Britain starts its game of chicken with the EU.

British voters, and especially Conservative Party members, need to understand it, rather than burying their heads in the sand. The country needs someone at the helm who has the guile, patience and persuasive power to bridge the vast gap in understanding between Britain and the continent as well as wade through the tedious but vitally important provisions of a new deal with Europe.

'Deadline may be extended'

The two-year deadline for Britain to leave the EU may be extended if an EU agreement on trade cannot be reached, Taoiseach Enda Kenny has

said. He said no official talks on Britain’s relationship with the EU can begin until the new British prime minister is elected and formally invokes Article 50.

This is due in September but there is some speculation the new prime minister may not immediately ask to leave.

“There will be no negotiations between the UK and EU until such time as the Commission are informed by Britain of intention to withdraw from the union. The clock starts to tick then,” Mr Kenny said.

“The period then, is a two-year period for those negotiations. There may be a short extension given to that towards the end. If it’s not concluded within that time then it automatically moves on to the World Trade Organisation conditions for trade and so on.

“What’s best for Ireland’s interests are that the UK would still have access to the single market.”